What allows current tax losses or credits to be applied to future tax returns?

The concept that permits current tax losses or credits to be utilized in future tax returns is known as "carryovers." This mechanism allows taxpayers to offset future taxable income with losses or unused tax credits incurred in prior tax years.

For instance, if a business has a net operating loss in the current year, it can carry that loss forward to subsequent years, reducing taxable income in those years. This provides significant tax relief, as it can decrease the amount of taxes owed in the future, effectively linking past losses to current and future tax obligations. Carryovers can also be applicable to certain tax credits that haven't been fully utilized, allowing taxpayers to claim these credits in later tax periods.

The other terms in the options have different meanings in tax context: adjustments refer to changes made to a taxpayer's income or tax liability; deferrals are a method of postponing tax payments to a future date; and exemptions typically relate to amounts that can be deducted from taxable income, reducing overall tax liability but not directly allowing losses to affect future tax returns.